John Pitblado

New York Federal Court Denies Cedent’s Motion For Reconsideration In Reinsurance Dispute Regarding Expense Provisions

June 13, 2018 by John Pitblado

This case was previously reported by us on April 30, 2018. As we previously reported, on March 20, 2018, a New York federal court largely denied the motions for summary judgment of both plaintiff, Utica, and defendant, Munich Re, finding that the expense provisions in the facultative certificates at issue were ambiguous and that extrinsic evidence was not submitted by the parties. Utica made a motion for reconsideration. In denying the motion, the court rejected Utica’s argument that extrinsic evidence was presented on the ambiguity found by the court in the facultative certificates. The court noted that the evidence noted by Utica “would in no way alter the conclusion the Court previously reached on this matter” and also that Utica failed to show that reconsideration was required.

Utica Mut. Ins. Co. v. Munich Reins. Am., Inc., Nos. 12-cv-00196; 12-cv-00743 (USDC N.D.N.Y. May 23, 2018).

This post written by Jeanne Kohler.

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The Eleventh Circuit Found No Waiver Of Right To Compel Arbitration Against Unnamed Class Members

June 12, 2018 by John Pitblado

The procedural history of the case can be found here. However, in sum, the case involves five consolidated class actions brought in Florida federal court against banks by bank customers in 2008 and 2009 alleging that they were unlawfully charged overdraft fees. Early in the case, the court ordered all defendant banks to file motions directed to the complaints, including those to compel arbitration. Wells Fargo did not file a motion to compel arbitration as to the named class representatives, but instead joined several other banks in filing a motion to dismiss. Wells Fargo also reserved its arbitration rights against unnamed class members in the event of class certification. Wells Fargo later filed answers to the complaints, stating that “’[a]bsent members of the putative classes have a contractual obligation to arbitrate any claims they have against Wells Fargo.’”

After the Supreme Court decision in AT&T Mobility LLC v. Concepcion, which held that the Federal Arbitration Act preempted state laws purporting to void prohibitions on class arbitration, Wells Fargo then moved to compel the named class representatives to arbitrate their claims. However, the Florida district court found that Wells Fargo waived its right to arbitrate against the named class representatives, and the Eleventh Circuit affirmed. After remand to the district court, the plaintiffs moved for class certification. Wells Fargo opposed the motion on the grounds of lack of numerosity because the unnamed class members had arbitration agreements with the bank, and also filed conditional motions to compel arbitration as to the unnamed class members. The district court denied Wells Fargo’s motions to compel arbitration. Wells Fargo appealed, and the Eleventh Circuit vacated the district court’s decision, finding that because no class had been certified, the district court lacked jurisdiction to rule on the arbitration obligations of unnamed class members. On remand, the district court then granted the plaintiffs’ motion to certify the class. Wells Fargo then moved to compel arbitration of the claims of the unnamed class members. The district court denied the motion, finding that Wells Fargo waived its right to seek arbitration by acting “inconsistently with its arbitration rights during its pre-certification litigation efforts” and that the plaintiffs would suffer “significant prejudice” if Wells Fargo were allowed to invoke arbitration after nearly 10 years of litigation. Wells Fargo appealed.

The Eleventh Circuit first noted that a party asserting waiver of arbitration faces a heavy burden of proof: it requires a showing that the party seeking arbitration has acted inconsistently with the arbitration right and that the opposing party has in some way been prejudiced. The court held that, even though Wells Fargo had waived its arbitration rights as to the named class representatives, it provided “fair notice at a relatively early stage of litigation” that it wished to preserve its right to compel arbitration as to unnamed plaintiffs in the event the classes were certified. The court also noted that “it would have been impossible in practice to compel arbitration against speculative plaintiffs and jurisdictionally impossible for the District Court to rule on those motions before the class was certified.” The court rejected the argument that, to avoid waiver, filing a conditional motion to compel was required much earlier in the litigation, because the district court would lack jurisdiction over such a motion until the class was certified.

Thus, the Eleventh Circuit vacated the district court’s order denying Wells Fargo’s motion to compel arbitration of the unnamed plaintiffs’ claims and remanded for further proceedings.

Gutierrez v. Wells Fargo Bank, No. 16-16820 (11th Cir. May 10, 2018).

This post written by Jeanne Kohler.

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Implications of U.S. Withdrawal from Iran Nuclear Deal on (Re)insurance Industry

June 11, 2018 by John Pitblado

On May 8, 2018, President Donald Trump issued a Presidential Memorandum announcing his decision to withdraw the United States from its participation in the Joint Comprehensive Plan of Action (JCPOA), the agreement under which Iran committed to limiting its nuclear activities in exchange for sanctions relief from the U.S. and others. The Presidential Memorandum directed the Secretary of State and the Secretary of the Treasury to immediately re-impose all nuclear-related sanctions that were suspended when the JCPOA was implemented in January 2016.

The JCPOA significantly impacted the insurance and reinsurance industry. By lifting sanctions once applicable to vast sectors of the Iranian economy, the JCPOA facilitated opportunities for insurers and reinsurers that were previously unable to transact business in or with Iran, or that were required to sacrifice lucrative dealings with U.S. companies in order to do so. Recognizing Iran was ripe for new insurance and reinsurance products, global companies quickly entered the Iranian market. The President’s recent decision to withdraw the U.S. from the JCPOA raises concerns as to the continued viability of those transactions. For instance, upon re-imposition of the National Defense Authorization Act for Fiscal Year 2012 (NDAA), U.S. and non-U.S. entities may be restrained from providing insurance, reinsurance or underwriting services relating to any Iranian activity for which certain other sanctions are also being re-imposed. The NDAA will also require compliance with restrictions on the underwriting of insurance and reinsurance risks to or for any person or entity on the List of Specially Designated Nationals and Blocked Persons. Underwriting, insurance and reinsurance services have also been specifically called out by the U.S. Department of the Treasury as areas in which sanctions are being re-imposed. (See Question 1.3 v.)

Restrictions impacting underwriting, insurance and reinsurance services are expected to take effect after a 180-day “wind-down” period scheduled to end of November 4, 2018. At that time, they will have immediate, far-reaching implications on the ability of non-U.S. companies that transact business in or with Iran to continue such business in the U.S. and with U.S. companies. All companies, insurers and reinsurers in particular, are advised to reevaluate their business risks in light of the Presidential Memorandum, and to take care not to enter any foreign transactions without ensuring compliance with all applicable sanctions.

We are continuing to monitor JCPOA-related developments and will update this post when there is more clarity.

This post written by Alex Silverman.
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New York State Court Denies Motion To Enjoin Arbitration By Non-Party To Arbitration

May 3, 2018 by John Pitblado

In this case, Royal Wine Corporation (“Royal”) moved for a preliminary injunction in a New York state court action to enjoin an arbitration filed by Cognac Ferrand SAS (“Cognac”), against Mystique Brands, LLC (“Mystique”) until the court has resolved the issues raised in Royal’s complaint filed against Cognac and Mystique, which seeks a declaratory judgment that Royal is not the alter ego of Mystique, and a permanent injunction barring Cognac from maintaining an arbitration against Mystique.

The background of the dispute is as follows. In 2008, Cognac and Mystique entered into a five-year contract (the “Agreement”), which granted Mystique the exclusive right to import certain of Cognac’s products to the North American market. Prior to its expiration, Cognac terminated the Agreement due to Mystique’s insolvency. Royal demanded that Cognac pay a $238,000 termination fee. Mystique then initiated an arbitration to obtain the termination fee, and Cognac filed counterclaims for fraud and breach of contract in that matter (the “First Arbitration”). The arbitrator dismissed the claims of Mystique and granted Cognac’s counterclaims, leaving only the issue of damages to be determined. Prior to a resolution as to Cognac’s damages, Mystique filed for bankruptcy, and the First Arbitration was stayed. According to the Bankruptcy Trustee’s Complaint, Royal funded Mystique’s unsuccessful First Arbitration and filed Mystique’s bankruptcy proceeding. Cognac then moved the Bankruptcy Court to lift the stay to permit Cognac to obtain a judgment for damages against Mystique and to proceed against Mystique’s principals on an alter ego theory of liability, which was denied. After the conclusion of Mystique’s bankruptcy action in 2017, Cognac filed a new arbitration against Mystique (the “Second Arbitration”), in which Cognac raised claims nearly identical to its counterclaims in the First Arbitration and sought to recover over $5 million in damages. Royal then filed the instant action in New York state court.

With respect to its motion for a preliminary injunction, Royal argued that Mystique is a defunct entity, that “serial arbitrations” are prohibited, and that the Second Arbitration is untimely. The New York court denied the motion, finding that Royal has no standing to stay the arbitration and is not entitled to assert Mystique’s defenses to the arbitration because Royal is not a signatory to the arbitration agreement between Cognac and Mystique. It further found that Royal failed to satisfy the elements necessary to obtain injunctive relief. In order to obtain injunctive relief, Royal was required to establish (1) a likelihood of success on the merits of its claim, (2) the danger of irreparable harm in the absence of a preliminary injunction, and (3) the balance of the equities favors it. The New York court found that Royal failed to establish a likelihood of success on the merits because it is not entitled to advance arguments on Mystique’s behalf while denying that it is Mystique’s alter ego. In this regard, the court noted that although “serial arbitrations” may be prohibited, such an argument belongs to Mystique, which had yet to be served with notice of the Second Arbitration. Royal also claimed that it will suffer irreparable harm if it is unable to assert Mystique’s defenses because Mystique is a defunct entity and Royal, the alleged alter ego, faces a potential default judgment for over $5 million. By contrast, Royal argued that Cognac would suffer no harm if the arbitration was delayed while the court determined the issue of Royal’s alter ego status.

The court rejected Royal’s argument, finding that if it denied the motion for preliminary injunction and Royal is later successful in its lawsuit, Royal will establish that it is not Mystique’s alter ego and will moot the issue of whether Royal may raise Mystique’s defenses. Accordingly, the court declined to find that extraordinary irreparable harm compensates for Royal’s deficiencies as to the applicable factors for obtaining a preliminary injunction. Thus, the court denied Royal’s motion to stay the Second Arbitration.

Royal Wine Corp. v. Cognac Ferrand SAS, No. 650249/2018 (N.Y. Sup. Ct. Feb. 26, 2018).

This post written by Jeanne Kohler.
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New York Federal Court Curbs 30(b)(6) Topics and Quashes Non-Party Seeking the Same Testimony

May 2, 2018 by John Pitblado

Defendants wanted to examine GEICO’s Rule 30(b)(6) witness about GEICO’s special investigation unit practices, protocols and guidelines, as well as its resources and procedures devoted to claim verification and fraud detection, as GEICO’s complaint alleged the defendants engaged in insurance fraud. The Court allowed few topics to proceed.

Rule 30(b)(6) depositions are intended to discover the facts and it is improper to use them in order to “ascertain how a party intends to marshal the facts and support its legal theories.” The topics that required GEICO to marshal the evidence GEICO believes constitutes or supports any potential defense to the Complaint were not allowed, nor were topics unrelated to the defendants’ claims or issues in the case.

GEICO also moved to quash two non-party subpoenas it believed was a “back-door attempt by defendants to improperly seek information that was previously requested in counsel’s Fed.R.Civ.P. 30(b)(6) Notice.” GEICO stated the non-parties had no involvement in investigating the insurance claims at issue and the Court agreed, finding the subpoenas to be harassing and unwarranted, granting the motion to quash.

Gov’t Employees Ins. Co. v. Lenex Services, Inc., et al., 16-cv-6030 (USDC EDNY Mar. 16, 2018)

This post written by Nora A. Valenza-Frost.

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